Assume you pour money, sweat, and tears into developing a nifty new technology. You want to make sure no one steals your hard work, so you file for and receive a patent from the US Government. You find out that one of your competitors is infringing your patent. You file a complaint with the International Trade Commission (ITC) under 19 USC § 1337(a)(1)(B). That section makes unlawful “[t]he importation into the United States, the sale for importation, or the sale within the United States after importation by the owner, importer, or consignee, of articles that ... infringe a valid and enforceable United States patent.” The ITC finds merit in your complaint and orders a formal investigation. You are confident that the ITC will order (upon the President’s approval) US Customs and Border Protection (CBP) to exclude the infringing merchandise. Then your competitor (the company importing the infringing merchandise) files for bankruptcy. You are stunned when the bankruptcy judge orders the ITC to immediately stop its investigation. While the automatic stay in bankruptcy stops collections activities against the bankrupt debtor, it normally cannot stop federal agencies from doing their job. However, this bankruptcy judge views the ITC investigation as different because it was initiated at the request of a private party, so it was not really the federal government that was being restrained.

Do you think the bankruptcy judge was correct?The federal court from the Eastern District of Virginia did not in ITC v. Jaffe, a decision rendered on June 28, 2010. The court concluded that the bankruptcy judge made a mistake. The automatic stay in bankruptcy could not prevent the ITC from continuing to investigate the bankrupt debtor. While the patent owner filed the complaint with the ITC, it was the ITC that initiated the investigation pursuant to its police and regulatory power. That the patent holder stood to inherit the bond posted by the infringing importer did not mean the patent holder was a creditor, the court reasoned.

The lesson is that bankruptcy can give companies and individuals valuable breathing room and keep bill collectors at bay, but it does not prevent the ITC from investigating whether the bankrupt debtor is violating someone’s intellectual property rights and it does not prevent CBP from excluding the debtor’s infringing merchandise.